The Process of Procurement: How to Effectively Execute Acquisitions

The Process of Procurement: How to Effectively Execute AcquisitionsRyan White2018-11-07T13:45:42+00:00

While the process of procurement might be ostensibly simple, it’s paved with stages and levels that require dextrous navigation, constant analysis and frequent monitoring throughout. Rather than simply locating the necessary goods, paying for them, receiving said goods and documenting the transaction, the process is a constantly evolving one.

As such, there is no one-size-fits approach to the procurement process; it can be entirely dependent on the organisation. Those on the more formal side will opt for a process in line with their values and one which complies with strict guidelines, while other organisations may differ.

Here, we offer guidance on how to approach the procurement process, as well as tips and advice on how to effectively navigate the acquisition of products in an effective manner.

How to Approach the Procurement Process

Identify your needs

Procurement is set in motion when a business requires goods or services to achieve its needs. Whether it’s external, internal, a new item or something being re-ordered, it will likely be a necessary component required to run the business. At this stage, you’ll identify what the item is, the amount you’ll need, when you’ll need it delivered and the approximate cost of all the items

Explore and select vendors

You’ll begin to source potential vendors that can provide you with the necessary goods at the best price and quality. Unless you already have a list of trustworthy, dedicated vendors, finding vendors who can offer you a high level of quality for a good price, that’s reputable to boot, is undoubtedly important. It’s possible you’ll be building a long-term relationship that’s mutually beneficial, so finding a vendor you’re comfortable working with is crucial.

Submit the purchase requisition

Once you’ve decided what items you require and which vendor you’ll be buying them from, you’ll need to get the go-ahead from the department with the funds needed to make the purchase. For this, you’ll need to create and submit a purchase requisition before you can actually go ahead with the order itself.

Create purchase order

When the purchase requisition has been approved, the appropriate department then sends a purchase order to the vendor you’ve chosen to work with. If you haven’t signed a contract with the vendor, then the purchase order will be legally binding in the contract’s absence. The purchase order details the price, specifications, terms and conditions of the product or service, as well as any other additional obligations. It will differ from vendor to vendor, but the purchase order tends to include the name of your company, the description and quantity of the goods or services, price, a mailing address, payment information and terms, invoice address and a purchase order number.

Pay for goods of services

If the order is as described and agreed upon, payment is to be sent to the vendor within the specified timeframe, usually in the form of cash, cheque, bank transfers, credit letters or other types of electronic transfers.

Record maintenance

At the end of the process, the company must maintain a record of the transaction, which includes thorough documentation of all purchases, from the start of the process through to the invoice.

Receive invoice and order

Depending on your vendor, you may or may not receive these at the same time. Either way, the vendor will send over an invoice to the purchaser which describes exactly what the order includes. It will confirm the sale and re-affirm when your payment is due.

Upon receiving the order, you’ll usually have a small window of time to let the vendor know of any issues with the product or service. If you’ve found any discrepancies, then you’ll have to reconcile your purchase order, order receipt and vendor invoice to double check that what you are being charged matches what you have received.

Tips and Advice

Assemble the right team

Before you start the process of procurement, consider who in your workforce you’ll need to best accomplish what needs to be done. The ideal team not only needs people involved with finance, sales & marketing, and operations, but strong communication and quick thinking to boot.

Communicate what you are doing

When contacting vendors, be transparent about what it is you want from the process. Detail your marketing strategy if necessary, and communicate with them as people from the moment you first contact them. Additionally, this practical approach cuts down on the amount of time-draining administrative emails that can get in the way of the process.

People first, purchase second

Further to the above, if you have the right team in place, then they’ll know the importance of valuing the vendor as people, and not just a place to purchase from. Emphasise the ‘soft skills’ within your team as this is where they’ll really shine at the procurement stage. Ideally, you’ll be forming a relationship with the vendor, which can take time, so it’s worth including your best “people persons” in your team.

Use risk management to your advantage

There’s more to the purchase beyond recording maintenance at the end of the process. It doesn’t stop there; you have to ensure safeguards are in place so that your organisation can thrive, its procurement function has a sound reputation and its operations are simplified. What can you do to minimise risk in order to protect the company?

Collect spend data

Among the most powerful tool that buyers have, spend data lets buyers know what they’re buying, who they’re buying from and how often – letting them find the best savings as a result.

Put value above cost savings

Those unfamiliar with the procurement process might think that cost savings are the most important part of it. While cost is significant, value tends to be more important. It’s worth educating those not involved with the process with the ins and outs of value, and why it often exceeds the importance of financial benefits.